coordination failure

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A situation where activities which could have benefited two or more parties do not take place because they fail to coordinate their plans. In less developed countries, for example, one might find mineral resources which are not mined because there is no transport to export them, and a railway which is not built because there is no freight for it to carry. If both projects went forward, both would be profitable, but neither is started, because the firms concerned do not know about, or do not trust, each other. The same problem can affect governments: a number of countries may refrain from liberalization of their trade because of worries about the effects on their balance of payments, whereas if they could all agree to liberalize at once, all could benefit.

Subjects: Economics.

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